HTC may cut prices to offset Xiaomi threat: Nomura

HTC Corp (宏達電) may cut prices on its mid-range smartphones in China to take on stronger competition from Chinese handset maker Xiaomi Technology (小米科技), Nomura Holdings Inc said recently.

Xiaomi, HTC’s closest competitor in the mid-range smartphone segment, announced its new Xiaomi M2 model at 1,999 Chinese yuan (US$314) on Friday.

The phone has a 28-nanometer quad-core processor from Qualcomm Inc, a 4.3-inch display and an 8-megapixel backside camera, specs that are comparable to those found in high-end smartphones.

Xiaomi also apparently followed Apple Inc’s practice of cutting an old model’s price to extend the product’s life cycle, reducing the price of its M1 smartphone model to 1,299 yuan from 1,999 yuan.

With industry headwinds getting stronger, it will be interesting to see if HTC’s brand premium can deliver results and be sustained in the Chinese smartphone market, said Aaron Jeng (鄭明宗), a Taipei-based Nomura analyst.

“Our market survey suggests that HTC is willing to sacrifice margins to trigger higher volume in the Chinese market, particularly after seeing the success of New Desire,” Jeng said. “We expect HTC to cut its One S phone price by over 25 percent from 3,999 yuan to below 3,000 yuan in order to get operators’ subsidies and make its cost-and-performance ratio attractive,” he wrote in a research note.

That strategy, Jeng said, would help HTC’s volume in China grow larger than Nomura’s estimate of 7 million units for this year as a whole.

While Xiaomi and HTC have different brand images and channels, they do share the top market-share positions in China’s mid-range smartphone segment, Jeng said.

Nomura estimated that Xiaomi and HTC held 15 to 20 percent and 10 to 15 percent shares respectively in the 2,000 yuan to 3,000 yuan smartphone segment in China in the second quarter of this year.

The two brands each had 5 percent to 10 percent market share in the first quarter, according to Nomura.

“HTC’s high-end model is not selling well in China, but its mid-range model is popular, which suggests to us that its brand value is good enough to drive price elasticity, but not strong enough to compete with Apple and Samsung,” Jeng said.

“We will watch if price elasticity still exists after many dual-core and quad-core models from local Chinese brands hit the mid-range segment in the second half of 2012,” he said.